Insurers are seeking a court ruling that late filing is reason enough to deny a commercial claim in Illinois and they do not need to show policyholder interference when the claim was investigated.
The carriers' argument was made in a brief submitted to the Illinois state Supreme Court.
Filed by the National Association of Mutual Insurance Companies, the Property and Casualty Insurer's Association of America and the Illinois Insurance Association, the argument concerns the case of Country Mutual Insurance Co. v. Livorsi Marine, Inc., which is currently being considered by the court.
In the case, Livorsi and Gaffrig Performance Industries argued that the trend in Illinois case law was moving toward requiring companies to prove that interference or non-cooperation with a claims investigation occurred, and asked the court officially make the requirement law by ruling in their favor.
In their brief, the insurance groups said no such trend exists, and changing that standard would have serious consequences.
"To effectively perform their contractual obligations to a policyholder, insurance companies must be able to investigate claims on a timely basis," said Marsha Harrison, regulatory affairs counsel for NAMIC.
Ms. Harrison said, "The more time that passes after a claim occurs, the more difficult it is for any interested party, including an insurer, to determine what happened. This is the rationale behind the policy requirement that an insured give timely notice to his insurer of a lawsuit filed against the insurer."
Additionally, Ms. Harrison noted, if the court requires the insurer to provide coverage despite receiving late notice with no reason, it would effectively be negating the timely notice provision of the insurance contract.
"Insurers cannot continue to do business in an environment in which the courts are prone to rewrite insurance policies," she said.
In the case, both Livorsi and Gaffrig each had general liability policies with Country Mutual. The two companies became involved in a trademark dispute and required Country Mutual to indemnify and defend them. Country Mutual denied these claims, arguing in state court that the dispute did not fall under the definitions of "advertising injuries" provided in the insurance contract, and, more importantly, neither company had complied with their contract's provision requiring notice of a lawsuit "as soon as practicable."
The lawsuits between Livorsi and Gaffrig were filed in December of 1999, and Country Mutual was not notified of them until 21 months later, in August of 2001. The trial court agreed with Country Mutual, and the state appellate court upheld the decision in November of 2004.
In its decision, written by Judge Warren Wolfson, the appellate court noted that both Livorsi and Gaffrig "do not dispute their notices were unreasonably late," nor had Country Mutual argued that it had proven any interference or non-cooperation on the part of the insureds, which is known in legal terms as prejudice.
"We find the insurer did not have to prove prejudice in order to deny coverage," Judge Wolfson concluded in the appellate court's ruling. "By so finding, we enforce the contract freely entered into by the parties."
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